The model law is overly prescriptive in its approach to evaluating foreign regulatory systems and too vague about who would cover the cost of the evaluations, according to comment letters filed with the NAIC by organizations representing reinsurers in Bermuda, Japan and the United Kingdom, as well as those in the United States.

The NAIC first circulated a draft version of the proposed process in November as part of its effort to provide states with guidance on how to implement revisions to the Model Credit for Reinsurance Law and Regulation passed in 2011. The proposed NAIC process outlines standards international jurisdictions must meet to be included on a list of approved domiciles, which states could use when determining which foreign reinsurers should be allowed to post reduced collateral. Currently, most states require non-domestic reinsurers to post collateral that is equal to 100% of the liabilities they write.

The NAIC said the process will be "outcomes-based" and it is "not intended as a prescriptive comparison to the NAIC Accreditation Standards" used for evaluating multi-state insurance companies.

However, in comment letters, international reinsurance organizations said the Reinsurance Task Force's proposed process goes beyond its states principles, making it overly burdensome on reinsurers seeking state approval to post reduced collateral.

The proposed process includes 21 principles for evaluation that are broken into more than 70 subhead paragraphs, wrote Bradley Kading, president and executive director of the Association of Bermuda Insurers and Reinsurers. The proposed process should be rewritten to cut out the subhead paragraphs, he wrote. Without changes, Kading said the proposed process will "inevitably" shift away from its stated mission to be an "outcomes-based" assessment.

As currently written, the proposed process "seems excessive , unnecessary, expensive, cumbersome and a deterrent to the accomplishment of the objective stated in the draft," Kading said.

Takashi Okuma, general manager of the General Insurance Association of Japan, lodged a similar complaint, saying requiring international regulatory systems to meet "qualified jurisdiction" standards while also requiring individual reinsurers to be certified to post reduced collateral amounted to "double jeopardy."

Okuma called the combination "unreasonable" and said reinsurers should be evaluated by either a direct or indirect process. "But not both," Okuma said.

The proposed process also drew fire for not explicitly stating who would pay for the evaluations.

Insurance Europe said the NAIC should cover the cost of evaluations because "providing the information required by the survey will already place significant costs on foreign jurisdictions participating and will indirectly/directly need to be met by their local industry."

James Odiorne, deputy insurance commissioner for the Washington State Insurance Department, argued in favor of a compromise approach, saying whoever initiates the evaluation process should cover the cost, whether it is the NAIC, the certifying state or the reinsurer seeking approval.

Finally, industry representatives targeted the proposed process' requirement that jurisdictions seeking approval include with their submission an opinion from an independent attorney certifying the filing's accuracy.

Kading said the requirement was "offensive" and said, "If you want it recognized that a regulatory lawyer, subject to specific legal and ethical training and licensing, participated in the self-assessment, that is completely different from what is written and should be corrected."

Lloyd's America's general counsel Joseph Gunset also questioned whether such an opinion was "necessary" as part of the information gathering process.

The International Underwriting Association and the Reinsurance Association of America also submitted comments to the task force.

The reinsurance collateral issue gained increased attention when the Dodd-Frank Act was under discussion in 2010 because the NAIC sought to have issues related to reinsurance included in that piece of legislation. As adopted by the NAIC in December 2008, a new framework would also reduce collateral obligations for non-U.S. reinsurers on a sliding scale that could reach 0% for highly rated companies. But some questioned the legality of the federal legislation because Article I, Section 10 of the U.S. Constitution prohibits states from entering into "any treaty, alliance or confederation" with other nations.

The topic has garnered increased attention in recent years as more states announce they have backed away from the 100% collateral requirements that have been in place for years. Florida, New York and New Jersey already have laws allowing for lower collateral, and Illinois, Indiana and Louisiana are looking into the issue.

The NAIC passed the updated version of the Model Credit for Reinsurance Law and Regulation model law in November 2011, after years of negotiation on the question of foreign reinsurance collateral.

Amendments to the model law centered upon two key questions: which foreign jurisdictions should be considered "qualified" by the NAIC, and whether it should provide "advisory support and assistance" to states in the reinsurance collateral reduction evaluation.

The amended model law requires the NAIC to publish a list of qualified jurisdictions. If a commissioner approves a reinsurer from a jurisdiction that is not on that list, he or she must provide a detailed report on how that jurisdiction meets certain regulator requirements.